In Mr Bruce Firth & Mrs Rita Firth as Trustees of the L Bately 1984 Settlement v HMRC [2022] TC8542, the First Tier Tribunal (FTT) dismissed a claim for IHT Business Property Relief. The services provided by the 'apart-hotels' in question were not sufficient to prevent it from being an investment business.

The L Bately 1984 Settlement (the trust) held 31% of the shares in a company, The Lawrance (Hotel) Living Ltd (The Lawrance). It had originally been a shareholder in the group holding company but, in 2012, as part of a demerger exchanged its holding for shares in The Lawrance, which became a separate company.

  • The Lawrance owned four properties in York and Harrogate which were operated as apart-hotels. The company defines an apart-hotel as offering accommodation with the quality of a boutique hotel with the freedom and privacy of apartment living.
    • One property comprised of nine serviced apartments with a reception, communal kitchen and conference room but no parking.
    • One of the properties included a café on the ground floor due to a planning requirement for there to be a retail unit. The café was operated by The Lawrance and could provide breakfast to the apart-hotel guests for an additional cost. On the other floors, it had thirteen serviced apartments and a reception area but no parking.
    • The other two properties comprised nine serviced apartments and a coach house with some private parking but no reception or other communal areas other than a garden.
    • All apartments were available to let on a night-by-night basis but were not serviced for stays of less than a week other than on request. They provided welcome packs with tea, coffee, milk etc, as well as wifi, bedding and towels. Guests could request additional packs for a fee including items such as flowers, cakes, prosecco etc.
    • The majority of guests were corporate customers staying for one to three nights.
    • The evidence showed that the café was not profitable, the receptions were closed two-thirds of the time, the conference room was rarely used and guests were actively deterred from using the out-of-hours service.
  • On the trust’s Ten-year anniversary in 2014, a claim was made for 100% Business Property Relief (BPR) from Inheritance Tax in respect of its shareholding in The Lawrance.
  • HMRC denied relief and issued a Closure notice and the trustees appealed to the FTT.

The FTT found:

  • There was no dispute that The Lawrance was a business but looking at that business and all factors in the round, and applying a qualitative not quantitative test as set out in the case of Executors of The Estate Of Marjorie Ross (Deceased) v HMRC  [2017] TC05959:
    • The properties were originally acquired as investment properties.
    • Food and extras were peripheral to the business at less than 5% of turnover.
    • There was a lack of clear evidence to substantiate claims made by the appellants that additional services were regularly provided to guests.
    • The property reception seemed to act more as the administrative hub of the investment business rather than as a service for guests, undertaking activities such as marketing, benchmarking, pricing, bookings, making the apartments ready for guests, dealing with complaints and requests, maintenance, repairs, insurance and business rates.
    • Whilst some apart-hotels, such as Staybridge Suites, would be categorised as providing services with the ancillary occupation of the accommodation, looked at in the round, the non-investment activities of The Lawrance were not that. They did not take the business over the line into the non-investment side of the spectrum and BPR did not apply.

The appeal was dismissed.

Useful guides on this topic

IHT Business Property Relief
A guide to what Business Property Relief is, when it can apply and pitfalls and planning points.

Trusts & Estates: Ten-year charge reporting requirements
What is the ten-year charge (or principal or periodic charge) and when does it apply?

How to appeal an HMRC decision
Disagree with an HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External link

Mr Bruce Firth & Mrs Rita Firth as Trustees of the L Bately 1984 Settlement v HMRC [2022] TC8542

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